Pan Merchant's IPO price demands more than the business can deliver?

New Straits Times

4 hours ago

KUALA LUMPUR: Pan Merchant Bhd, a manufacturer of industrial filtration equipment, is set to debut on the ACE Market of Bursa Malaysia tomorrow (Thursday).
While the company touts its international presence - with exports spanning Asia, Europe, the Americas, and Africa - its fundamentals suggest that the initial public offering (IPO) price of 27 sen per share may be overly ambitious relative to its current business capacity.
Two broking houses have already raised red flags. TA Securities values the stock at 23 sen, while Public Investment Bank Bhd pegs fair value at 25 sen - both below the IPO price.
Their concern? The company's price-to-earnings (P/E) ratio, which at listing works out to over 32 times based on its 2024 earnings of 0.84 sen per share.
Industry observers said it is steep for an industrial manufacturer in a low-growth sector, far above the 12x to 15x P/E multiples typically seen for similar businesses in Malaysia.
Analysts have chimed in to say that despite its global footprint, Pan Merchant's growth story lacks the kind of clarity and ambition that would typically justify such a lofty valuation.
They added that while the proceeds from the IPO will fund automation, new machinery and working capital, the company's business plan - as outlined in its prospectus - is largely incremental.
"There are no major contract wins announced, no breakthrough technologies unveiled and no concrete roadmap to significantly lift margins or scale into higher-value markets," a merchant banker familiar with the company said.
The company positions itself as a niche player supplying filtration components to industries such as edible oil refining, food processing, sustainable fuel production, water and wastewater treatment, and mining.
"While these sectors offer steady demand, they are generally mature and cost-sensitive, with limited pricing power.
"Without a visible innovation pipeline or a move into adjacent verticals with stronger margins, earnings may continue to follow the modest trend seen in recent years," the merchant banker added.
Industry observers said while management highlights plans for international expansion and improved capacity utilisation, those projections remain broad and largely untested.
There is limited visibility on customer growth and even less clarity on how Pan Merchant plans to defend or expand its market share in a competitive landscape, particularly against regional players with greater scale and established networks.
Another concern, said an analyst in a bank-based broking house, is the company's emphasis on international presence without a corresponding scale in revenue.
While Pan Merchant exports more than 80 per cent of its products to markets across Asia, Europe, the Americas and Africa, its overall revenue base remains modest, and current earnings do not yet reflect the kind of scale or momentum typically seen in established global industrial suppliers.
The broad consensus appears to be that, in short, investors are being asked to pay a premium price today for a performance that may or may not materialise tomorrow.
With a small net profit base and a low barrier to entry in its segment, Pan Merchant's premium P/E valuation looks like a case of pricing in future growth without strong supporting evidence.
Unless the company can meaningfully accelerate its earnings - through aggressive expansion, product innovation or strategic partnerships - the IPO price may prove overly optimistic.
At the very least, it's a valuation that reflects more hope than hard numbers.